Texas Fraudulent Lien Relief: Options for Removal of Fraudulent or Invalid Liens in Texas

Texas Fraudulent Lien Relief: Options for Removal of Fraudulent or Invalid Liens in Texas

by Montye Holmes

You are a lender, loan servicer, or a property owner and a title search shows that someone has filed a fraudulent lien on your property or collateral that clouds title.    This problem arises from a variety of sources, ranging from crazy squatters with no valid basis to a subcontractor who may have valid claims against your borrower or tenant but not a legal right to record a lien on your property or collateral.  The fraudulent or invalid lien may not be causing problems now, but it will when you try to sell the property, either directly or after a foreclosure sale.  The following discusses options to attempt to remove a lien depending on the type of lien and whether it is fraudulent or merely invalid.  All options generally involve some type of litigation after a demand letter to the offending party.

Declaratory Judgment

Although generally not the best option, a catch-all remedy is a lawsuit seeking a declaratory judgment of lien invalidity under the Texas Declaratory Judgment Act (Chapter 37 of the Texas Civil Practice Remedies Code).   However, this remedy is generally more costly and time consuming than some potential lien specific avenues as a declaratory judgment action requires the filing of a petition, possible discovery, and a motion for summary judgment.

Motion for Judicial Review of Lien

A more efficient option if the lien is in fact fraudulent is the remedy afforded under §51.903 of the Texas Government Code which permits a “person” to file a Motion for Judicial Review of Documentation or Instruments Purporting to Create a Lien or Claim.  The statutory provision itself includes a form setting forth the requisite sworn allegations.  The statute applies to those who “own an interest in real or person property”.  Notably, this remedy may not be used to invalidate a lien or document unless it is established to be fraudulent.  For example, the use of this particular remedy to attempt to negate a mechanic’s lien that is potentially invalid but not fraudulent has been held to be improper.  See In Re Purported Liens or Claims Against Samshi Homes, L.L.C., 321 S.W.3d 665 (Tex. App.-Houston [14th Dist.] 2010, no pet.).  In that instance the better approach would be a Summary Motion to Remove a Lien pursuant to the Texas Property Code as discussed below.

Depending on the specific type of lien, there are specific statutory remedies that may provide a more efficient path to removal of the offending lien.  The specific remedies include:

Judgment Liens

If the lien is a judgment lien, considering filing an Action on Fraudulent Judgment lien pursuant to §51.902 of the Texas Government Code.  No filing fee should be required per the statute.

Mechanic’s Lien

If you are seeking to remove an invalid mechanic and materialman’s lien, consider filing a Summary Motion to Remove a Lien pursuant to Texas Property Code §53.160.  This provision comes in handy for an expedited removal of a subcontractor’s lien that is barred by the statute of limitations or that otherwise fails to comply with the Texas Property Code’s numerous requirements for perfecting mechanic and materialman’s liens.

Lis Pendens

Although not technically a lien, a recorded lis pendens nonetheless places a cloud on title.  The specific procedure for removal of the lis pendens is outlined in §12.0071 of the Texas Property Code which provides that a party may file an application to have a lis pendens expunged.  See In Re Cohen, 340 S.W.3d 889 (Tex. App.-Houston [1st Dist.] 2011, no pet.) (Discussing the requirements for removal and clarifying that a lis pendens is only valid if the underlying lawsuit pertains to real property claim as opposed to a claim for money damages).

Money Damages for Fraudulent Liens

Chapter 12 of the Texas Civil Practice and Remedies Code provides a specific cause of action to seek money damages from a person who files a fraudulent lien.   Damages consist of the greater of $10,000 or actual damages incurred.  A Plaintiff must show that the person who filed the fraudulent lien intended to cause another person to suffer physical injury, financial injury, mental anguish or emotional distress.

No information in this article is intended to constitute legal advice.  For specific legal advice, please contact an attorney.

If you have any questions or would like more information about fraudulent liens in Texas, please contact Michael F. Hord, Jr. at 713-220-9182.